 COST, REVENUE AND PROFIT FUNCTIONS

 Given the demand function p=100-2Q. Express Total

Revenue (TR) as a function of Q and sketch its graph.
i. For what values of Q, TR =0?
ii. What is the maximum value of TR?
 Solutions:
We know,
TR=P*Q
=(100-2Q)Q
= 100Q-2Q2

Step 1: The coefficient of Q2 is negative so the graph is an

inverted U shape.

Step 2: The constant term is zero. So the graph crosses the TR

axis at the origin.
Step 3: To find where the curve crosses the horizontal
axis we could use the formula
TR= 100Q-2Q2
=> TR= (100-2Q)Q
i. TR=0 When, (100-2Q)Q=0
either Q=0 or 100-2Q =0
Q=50
The total revenue is zero when Q=0 and Q=50.
ii.The parabola reaches its maximum halfway between
0 and 50,that is at 25
The corresponding total revenue is given by
TR= 100(25)-2(25)2
=1250
 If fixed costs are 4, variable costs per unit are 1 and the
demand function is P= 10-2Q obtain an expression for
Π in terms of Q and sketch the graph
a) For what values of Q does the firm break even?
b) What is the maximum profit?
 Solution
We begin by obtaining expressions for the total cost and
total revenue. For this problem, FC= 4and VC= Q
TC = 4+Q
TR= 10Q-2Q2
Π=TR-TC